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TheStreet Open House

Best Buy Makes Its Advance on Amazon

NEW YORK (TheStreet) -- While Amazon (AMZN) and CEO Jeff Bezos spend the summer touting the technical attributes of the new Fire smartphone and Fire TV, and why consumers need each, Best Buy (BBY) is moving to advance on the online retailing giant. 

What Best Buy is doing to transform its physical stores should interest Amazon, which derives approximately 68% of its annual sales from electronics and general merchandise, according to its 10-K, and boasts a dedicated Samsung shop on its Web site along with the latest premium offerings from Sony.

Best Buy is opening its new Samsung Experience and Sony (SNE) home theater shops that were announced in early May. Designed to elevate customer service, project a visual "wow" factor, and connect the selling experience to the online world in a key part of the store, these new branded home theater shops are currently in 300 U.S. Best Buy store locations, or roughly 28% of the store base (excluding Best Buy Mobile), according to Jeffrey Shelman, director of external communications.

"By the end of the summer, when it is done, there will be 500 Samsung experiences and 350 Sony experiences. Some stores will have Samsung, some will have Sony only, many will have both," noted Shelman. Those totals work out to 47% of Best Buy stores in the U.S. (excluding Best Buy Mobile) with a Samsung home theater shop, and 33% with a Sony store.

Best Buy was unable to provide details on financial arrangements between it and Samsung and Sony, but pointed to this statement from the third-quarter analyst call from CEO Hubert Joly:

So each vendor store, of course, is going to be different. But generally speaking, Best Buy is not -- Best Buy's main activity is not philanthropy, so we are doing this because it makes sense from a financial standpoint. Generally speaking, there is more help provided from the vendor, as related to the cost of operating the stores-within-the-stores in terms of the either it could be the labor, the fixtures, and the space, all of these things. There is a financial contribution, retail contributions. There are improved margins. It can be improved margins on the products. And then of course, importantly as well as sometimes or typically marketing support because these vendors can see their stores within Best Buy as their store, which it is, and therefore, directing traffic to Best Buy makes sense.

The speed in which these new shops are opening -- the program was completed in roughly three months -- suggests Best Buy could announce at least one more vendor partnership before the Christmas holidays. That announcement could be made around the time of the next earnings release in August.  

Best Buy shares have risen about 19% in the past three months. The stock was up 0.7% on Monday to $31.25.

The latest shop rollouts could be a profitable undertaking for Best Buy given its arrangements with vendors, as well as the more premium items it has for sale.

Up Close and Personal With the New Shops

These Vine videos were self-produced from a New York store that was recently retrofitted with the new Sony and Samsung home theater shops. Take note of how the shops are laid out in a way that fosters one-on-one dialogue between a potential buyer and a Best Buy employee. 

When entering the store, the new shops are evident.

The lighting for the new shops is some of the brightest (if not the brightest) in the store.

The layout offers the customer different experiences, piquing curiosity.


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-- By Brian Sozzi CEO of Belus Capital Advisors, analyst to TheStreet. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff. At the time of this publication, Belus Capital Advisors rated Best Buy shares at hold. Brian Sozzi is the CEO and Chief Equities Strategist of Belus Capital Advisors. He is responsible for developing and managing an equities portfolio of mid- and large-cap positions, in addition to leading the firm's digital content initiatives. He is also a personal finance columnist for Men's Health magazine.

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